A Day for TPAs

It might not have made it to your calendar, but last week (October 17) was National TPA Day. 

The timing is no accident—yesterday would have been for many calendar-year ERISA plans the (extended) deadline for filing the annual ERISA 5500 form.[i] Like April 15 for CPAs, that date—and timing—are of enormous consequence. And with that annual deadline in the rearview, third-party administrators everywhere can, perhaps, heave a huge sigh of relief. Maybe even throw a little “party.”

The relationship between advisors and TPAs is complex, and one in which there seems to be little middle ground. For every advisor that tells you how many times their TPA partner has gotten them out of a real mess—and for every TPA that applauds the leadership demonstrated by their advisor teammate—well, there seems to be one that either dismisses the TPA’s propensity for a mistimed focus on minutiae that is the essence of being a dutiful TPA, or one that frets that an advisor’s focus on the “big picture” obscures significant operational and administrative issues.

There is, in fact, a certain yin and yang to the perspectives of the two roles—and just like the concept that originated in Chinese philosophy (describing opposite but interconnected, mutually perpetuating forces)—successful (and legal) plan design and operation require a balance. Where plans often fail is when one or the other dominates. 

Just as advisors are often (and inaccurately) seen as the sole fiduciary in a plan once they’re hired, TPAs are generally assumed to be attending to all of the particular details of accurately running the plan; we’re talking about things like ensuring that the terms of the plan document are adhered to, that non-discrimination tests are properly applied, and that contributions are timely deposited. The lines are often blurred between TPA and recordkeeper—the latter technically being a TPA, though these days the level of services can differ dramatically. 

Over time the role of TPA has been diminished in the eyes of many. Sure, they deal with a lot of technical “minutiae”—we’re talking deep in the “weeds” here. The classic reference is you ask what time it is, and they (some, anyway) first want to explain to you how a watch is made. That said, the role of plan administrator—perhaps a better label would be compliance administrator—is essential—critical—to the smooth, effective and efficient running of a plan—and on aspects that,[ii] odds are, your recordkeeper (another critical role, but one often focused on other things) isn’t always. They can even help you find—and keep—clients!

That said, TPAs come in all shapes and sizes—and like advisors—have different service models, areas of specialization and, yes—personalities. If you’ve had a bad experience—you’re not alone. But for my money, if you want to be able to focus on the plan issues that truly require your expertise—rather than your attention—you’ll find that all to be easier with the assistance, support, and guidance of a qualified TPA.[iii]

If you’ve found a good one (or two)—be sure to give them a hug—and maybe a cake. It’s National TPA Day, after all… 

- Nevin E. Adams, JD

Additional TPA Resources: 

Finding the Right TPA Partner

Bundled Versus Unbundled: 5 Myths

Resource ‘Full’?

What’s in a Name?   

 

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[i][i] Credit the folks at John Hancock for—to my eyes, anyway—making TPA Day a “thing.”

[ii] Things like that: 

1. All eligible workers are included in the plan—as required by law—and ineligible workers are not unduly credited with benefits?
2. Compensation used as the basis for contributions and/or eligibility is accurate, in accordance with ERISA and IRS limits, both with regard to amount (how much) and individuals (who)?
3. The plan’s allocation of benefits meets legal requirements and the correct individuals receive the correct amount(s), thus preventing the need for corrective measures and penalties? 
4. The amount(s) allocated to individual participant accounts match the actual dollars deposited into the plan/trust. Additionally, to ensure that contribution deposits are made to the plan/trust in accordance with legal requirements, forestalling legal fines and penalties?
5. The appropriate plan notices are timely delivered to the applicable individuals in accordance with legal requirements, providing them with important plan information and instructions (and preventing the application of penalties for failing to do so)?
6. Employees are properly categorized as to their status as highly compensated employees (HCEs), key employees (for top-heavy testing) and spousal/familial relationships so that the allocation of benefits and eligibility is appropriate and consistent with legal requirements?
7. The tax filings related to the plan (Form 5500, 8955, 5330, etc.) are filed accurately and on time in order to comply with the legal requirements regarding the plan, and thus avoid fines and penalties?
8. The amounts distributed as loans or distributions are consistent with the vesting schedule of the plan, in accordance with plan parameters and legal limits—and that the needed authorizations are obtained?

[iii] And here’s a resource that can help you validate/align expectations of service; HERE.

Have You Hugged Your TPA Today?

If you work with TPAs—third party administrators—you might want to avoid bugging them this week. 

As you may well know (certainly if you work with TPAs), this year, Monday (Oct. 17th) is the deadline to file Form 5500s, and for most TPAs, that’s a pretty all-consuming focus. So much so that every year on the day AFTER the Form 5500 filing deadline, John Hancock declares an annual day of recognition for TPAs. 

Now, to its credit, John Hancock goes so far as to note that National TPA Day is also a reminder to financial professionals (especially those still getting established) that partnering with TPAs may be an important pathway to success. Not that everyone feels that way, of course.

I’m talking about the disconnects in focus between retirement plan advisors and TPAs—an issue that is, perhaps, as old as ERISA itself—this “tension” between these two critical roles. Not in every case, of course—there are plenty of advisors that will tell you how many times their TPA partner has gotten them out of a real mess, and TPAs that will commend the leadership demonstrated by their advisor teammate. But that, it seems, isn’t the majority experience, though it proves it can be that. 

As it turns out, I’ve spent some time on both sides of that “divide,” and a fair amount of time able to observe both from a distance. I’ve listened to groups of TPAs gripe about advisors who “won’t stay in their lanes”—and advisors frustrated with TPAs who, when asked what time it is, insist first on explaining how a watch is made. I can remember personal experiences trying to explain complex plan design decisions with real-world implications—only to have the decision-makers decide it was time to step out for the equivalent of “brandy and cigars” with the plan advisor, leaving the decisions—undecided.   

The beauty of these times—and our associations—is that I was able to reach out on an ad hoc basis to folks that I knew could also appreciate both sides of the “debate,” and who cared enough to try and do something about it. This core group—Mary Patch, Chad Johansen, JD Carlson, Shannon Edwards, Justin Bonestroo & Amanda Iverson—have given up a LOT of their time and energy over the past many months to this undertaking. COVID helped in some ways—nobody was travelling as much, and we’re all now well accustomed to meeting virtually to solve problems. 

Our collective sense was that what makes the difference in these relationships is having a shared set of goals and expectations, alongside role clarity and confidence in the perspectives and expertise of the partner(s). We started with posts that have run on NAPA-Net on a monthly basis beginning last year (links below), came to something of a crescendo with a special TPA panel at the 2022 NAPA 401(k) Summit, and ultimately culminated in a checklist of sorts that you can find here. Think of it as a relationship pre-screener.

That checklist alone (and we’re hoping you’ll reconsider Compliance Administrator or Compliance Consultant as replacements for that awful TPA moniker) won’t solve all communication/expectation issues, but we hope it will be a solid foundation to open a dialogue. At its most basic, it should allow you to find out what services potential (or current) TPA partners provide, which are standard to their practice(s), and which are “extra.” But ultimately—and most significantly—it is designed to align expectations. 

There may well be things on this list of which you are unfamiliar—if so, this would be a good time to find out more about them, as I assure you, they are important, and SOMEBODY should be attending to them.  The core team is now working on some background explanations—if some jump out at you for a quicker explanation, please let me know. I—and indeed the entire core team—would love for you to begin using this checklist in your partner discussions—and to let us know what works—and of course, what doesn’t in the days and weeks ahead.

My undying thanks again to the core team for the love, humor, friendship and passion on this effort–– and to about a dozen advisors (you know who you are) who provided some terrific insights and perspective as the checklist neared completion. 

And ultimately to you, gentle reader, for helping us build this bridge…

- Nevin E. Adams, JD

Finding the Right TPA Partner

Bundled Versus Unbundled: 5 Myths

Resource ‘Full’?

What’s in a Name?     

The ‘Best’ of 2021

I’ve been writing a weekly column (and then some) for more than two decades now. Some are easier to write (and read)—and some hold up better (and longer) than others. These are some of my (and perhaps your) favorites from 2021.

Let me know what you think in the comments below… particularly if I have missed one of your favorites… 

What’s So Special About College Debt?

Student loan debt—or more precisely, the forgiveness of some part of it—has dominated the headlines of late—but it’s been on the minds of retirement plan sponsors for a while now. The question is—why? https://www.napa-net.org/news-info/daily-news/whats-so-special-about-college-debt

Bundled Versus Unbundled: 5 Myths

While there are some amazing bundled solutions, ERISA’s admonition to act solely in the interests of plan participants (and beneficiaries), alongside the requirement that those be reasonable in terms of cost and value, call for a careful and considered evaluation. In that vein, there are some “myths” that seem to be prevalent regarding those choices, perceptions that persist even today. https://www.napa-net.org/news-info/daily-news/bundled-versus-unbundled-5-myths

Is COVID-19 a Retirement Story?

A recent paper was titled “COVID 19 Is Not a Retirement Story.” A week later, an article on Forbes.com said: “COVID-19 Is Most Certainly a Retirement Story.” So, which is it? https://www.napa-net.org/news-info/daily-news/covid-19-retirement-story

‘The 37-Year-Olds Are Afraid of the 23-Year-Olds Who Work for Them’

Yes, having lived through the not-so-subtle eye-rolling of younger co-workers (and the more recent dismissive “OK, Boomer” commentary), I couldn’t help but find some small modicum of comfort in the notion that that generation was, essentially, being hoisted on its own generational “petard.” https://www.napa-net.org/news-info/daily-news/37-year-olds-are-afraid-23-year-olds-who-work-them

Attention Getters

I was recently taken to task for a column about retirement savings regrets. https://www.napa-net.org/news-info/daily-news/attention-getters

5 Plan Committee Missteps

There is frequently a difference between doing what the law requires and doing everything that you could do as a plan fiduciary. That said, there are things that plan fiduciaries must do—and things that, while not required, can keep the plan, and plan fiduciaries out of trouble. https://www.napa-net.org/news-info/daily-news/5-plan-committee-missteps

Three ‘Scary’ Things That Give Plan Sponsors Chills

Halloween is the time of year when one’s thoughts turn to trick-or-treat, ghosts and goblins, and things that go bump in the night—and, for plan sponsors, and those who support them, a good time to think about the things that give us pause—that cause a chill to run down our spine… https://www.napa-net.org/news-info/daily-news/three-scary-things-give-plan-sponsors-chills

Things You Don’t Learn in School

Life has many lessons to teach us, some more painful than others—and some we’d just as soon be spared. But the graduates of 2021—well, they’ve been through a lot, arguably more than most—but with any luck at all, the days and years ahead will be brighter. Regardless, if you have a graduate—or if you are a graduate, here are some insights I’ve picked up along the way… https://www.napa-net.org/news-info/daily-news/things-you-dont-learn-school

Thanks again for all your shares, likes, support and comments along the way—wishing you all the best in 2022!

- Nevin E. Adams, JD

Bundled Versus Unbundled: 5 Myths

 As human beings, we’re often motivated to seek simpler solutions to life’s challenges. But sometimes “simpler”… isn’t. 

While there are some amazing bundled solutions, ERISA’s admonition to act solely in the interests of plan participants (and beneficiaries), alongside the requirement that those be reasonable in terms of cost and value, call for a careful and considered evaluation. 

In that vein, there are some “myths” that seem to be prevalent regarding those choices, perceptions that persist even today. Here are some points to consider:

An unbundled approach is more expensive.

The reality is, it can be—depending on the point of comparison. If all other things are “equal,” then certainly engaging another level of service and compliance oversight can bring with it additional costs. Then again, engaging the services of a third-party administrator[i] (TPA)—at least the right TPA—is hardly an “all other things equal” comparison. Their involvement and engagement may well streamline the time involved in reconciling data and contribution flows, could provide insights on plan design that could save money and enhance benefits, positions them to coordinate communications on plan audits—and, significantly, likely forestalls the need for plan corrections, fees and fines. 

It might appear to cost more on the front-end—but it could more than pay for itself in other ways.

With bundled solutions, there is a single point of contact.

With most bundled solutions, it’s probably more accurate to say that there is a single starting point of contact. No matter how gifted, talented and powerful the designated point of contact for a given plan is, there are inevitably silos of information and resolution. For example, legal questions are routinely passed along to other departments, payroll reconciliations in another—those resources are not only in another department, they may often be in another state—or time zone. 

That doesn’t mean there’s no value in that single designated contact—but it’s rarely a “one-stop” shop. 

Using a third party complicates communications.

Without question, adding a TPA to the plan’s “phone tree” does add another point of contact when it comes to communications regarding plan compliance or administration. On the other hand, the right TPA can actually centralize and even streamline critical communications between the plan sponsor and recordkeeper, or with payroll. It might look like another point of contact—but it could actually simplify and consolidate the number of calls that have to be made—and, more importantly, could reduce the need for calls to correct the misunderstandings inevitable in telephone “tag.”

TPAs are best suited for smaller plans.

Smaller plans—where plan designs frequently take into account specific objectives of the business owner (including complications of things like top-heavy testing)—are certainly a good fit for the expertise of a TPA. That said, issues with payroll, compensation definitions, eligibility evaluation and vesting determination are issues with which plans of every size and shape must deal—not to mention the correction process with the DOL and IRS when things don’t happen as they are supposed to. A good TPA can mitigate the former, and smooth the way with the latter, should the need arise. 

All TPAs are the same.

All of the responses above are conditional—on engaging the “right” TPA, or a good TPA. But TPAs, like bundled providers (and advisors), are comprised of individuals of varying levels of skill, talent, experience and commitment. It’s important to find the one(s) that fit your needs—and those of your plan sponsor clients. 

Things—administration, compliance, and yes, correction—have grown significantly more complicated over the years and today TPAs not only keep up with participant accounts, they can be an invaluable resource to plan sponsors—and advisors—on issues like regulatory compliance and plan design.  

That makes it hard to obtain an apples-to-apples comparison. Indeed, the fact that each record keeper has a different process for… just about everything, makes it easy for things to fall by the wayside if you don’t have a clear assignment of responsibilities with every party involved.

Those looking for a good place to start that assessment can find it in this year’s NAPA-Net Black Book listing of TPAs—or among the membership of our sister association, the American Society of Pension Professionals and Actuaries (ASPPA). 

Because sometimes the best way to keep things “together” is to break them apart…  

See also “What’s in a Name?” and Resource ‘Full’?

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[i] It’s worth noting that your recordkeeper is a TPA.

An Insiders' Perspectve(s)

There’s nothing like the NAPA 401(k) Summit—particularly being at the NAPA 401(k) Summit after the many months and a worldwide pandemic that kept us all apart. 

Each year for the past four years we’ve taken advantage of that gathering (including in 2020 when we gathered “virtually”) to reach out[i] to the nation’s top retirement plan advisors to glean their perspective on a wide range of issues relating to their practice—and practices. 

This year’s Summit Insider was no exception—as we “consulted” with more than 500 retirement plan advisors and home office staff on a range of issues—the criteria in selecting—and rejecting—key business relationships, the things that are over-hyped—and the things that no one is talking about—but that everyone, at least in the eyes of these “Insiders,” should be. We also got some insights on retirement income, important features in choosing target-date funds, rollovers and outcomes. 

We’ve included a number of verbatim comments on what these “Insiders” wish that plan sponsors knew, or knew better. Sometimes those words are harsh, sometimes reassuring—but we asked advisors for their insights, and they were generous in doing so. I only wish we had room to share them all.

Key Findings

Among the key findings:

• Glidepath philosophy topped the criteria on selecting target-date funds, slightly outpacing 5-year performance.
• More than half of the advisors surveyed focus on measuring outcomes at the plan level during every plan review.
• Nearly two-thirds deliver financial wellness as a component of their current service offerings—another 17% do so through an external partner.
• ESG remains the most “overhyped” trend in the industry, outpacing robo-advice and MEPs/PEPs by a significant margin.
• Portability was deemed the most influential/compelling factor to respondents’ plan sponsor clients in considering a retirement income solution. It was also the most cited factor influencing advisor considerations.
• Client support and market intel were tied as the most-valued support from the DC wholesaler partners.
• Service was—still—the dominant criteria in selecting a TPA partner.  
• Rollovers, the SECURE Act’s expansion of a retirement income safe harbor, including lifetime income disclosures on participant statements, managed accounts, and e-delivery were all rated as “positive game changers.” However, a third rated managed accounts as “much ado about not much.”
• Legislation to allow student loan repayment matching was cited as a positive gain changer by 7 in 10, and legislation to expand emergency savings accounts drew “positive game changer” support of 60%. 
• The Labor Department’s fiduciary (re)proposal? A plurality (43%) said it was “too soon to say.” Which, as we’re still waiting for it, seems reasonable (if not obvious). 
• Recordkeeper consolidation was viewed as a negative game changer by nearly half (46%), though a quarter (23%) saw it as a positive.

As for what they wished plan sponsors knew more about, the list included “their roles and responsibilities,” the role(s) of other parties servicing the plan, fees, plan design, plan operations—oh, and “our roles,” of course. The verbatim quotes here are, as you might imagine, “priceless.”

A special thanks to the hundreds of retirement plan advisors who took the time to provide such thoughtful responses—and to the sponsors of this fourth edition of the Summit Insider. Which NAPA members can find in your mail—or online at https://www.napa-net.org/industry-intel/summit-insider.

- Nevin E. Adams, JD

What's In a Name?

What’s the most used and least understood/appreciated acronym in the retirement plan industry?

Well, for my money, it’s “TPA”—short for “third-party administrator.” It’s a term that is widely bandied about, but I think misunderstood by many.

The origins are plain enough—“administrator” in the sense that a TPA deals with plan administration process and issues. The issues and process, it bears noting, that ERISA (not to mention the IRS and DOL) presumes are the responsibility of the plan fiduciary. We’re talking about things like ensuring that the terms of the plan document are adhered to, that non-discrimination tests are properly applied, and that contributions are timely deposited. 

Where things seem to get confused is the “third party” reference. At its simplest, it’s merely an acknowledgement that the entity performing those vital plan administration functions is someone other than the entity responsible under the law. They are, quite simply, a party external to that legal circle. They are legally an extension of the plan sponsor/administrator, and though it’s hard to imagine it these days, it harkens back to a time when the plan sponsor/employer actually did all that work in-house, often on 12-column pads and calculators. 

Over time the role of TPA has been diminished in the eyes of many. Sure, they deal with a lot of technical “minutiae”—we’re talking deep in the “weeds” here. The classic reference is you ask what time it is, and they (some, anyway) first want to explain to you how a watch is made. That said, the role of plan administrator—perhaps a better label would be compliance administrator—is essential—critical—to the smooth, effective and efficient running of a plan—and on aspects that, odds are, your recordkeeper (another critical role, but one often focused on other things) isn’t always.

Here’s a partial list—bearing in mind that every plan has to do these things, ask yourself—and your plan sponsor clients—who is making sure that:

1. All eligible workers are included in the plan—as required by law—and ineligible workers are not unduly credited with benefits?
2. 
   Compensation used as the basis for contributions and/or eligibility is accurate, in accordance with ERISA and IRS limits, both with regard to amount (how much) and individuals (who)?
3. The plan’s allocation of benefits meets legal requirements and the correct individuals receive the correct amount(s), thus preventing the need for corrective measures and penalties? 
4. The amount(s) allocated to individual participant accounts match the actual dollars deposited into the plan/trust. Additionally, to ensure that contribution deposits are made to the plan/trust in accordance with legal requirements, forestalling legal fines and penalties?
5. The appropriate plan notices are timely delivered to the applicable individuals in accordance with legal requirements, providing them with important plan information and instructions (and preventing the application of penalties for failing to do so)?
6. Employees are properly categorized as to their status as highly compensated employees (HCEs), key employees (for top-heavy testing) and spousal/familial relationships so that the allocation of benefits and eligibility is appropriate and consistent with legal requirements?
7. The tax filings related to the plan (Form 5500, 8955, 5330, etc.) are filed accurately and on time in order to comply with the legal requirements regarding the plan, and thus avoid fines and penalties?
8. The amounts distributed as loans or distributions are consistent with the vesting schedule of the plan, in accordance with plan parameters and legal limits—and that the needed authorizations are obtained?

And perhaps most critically, who is there to help ensure that problems with regard to plan operation—perhaps relating to any/all of the items above—are promptly and accurately corrected in accordance with government platforms and processes to minimize the pain, time—and financial penalties—involved?

These are questions to which prudent fiduciaries—and those who support them—should know the answer(s).

Trust me—the IRS and DOL expect that you do—and ERISA expects nothing less.

- Nevin E. Adams, JD

Resource Full?

A great resource to help you grow and expand your business could be right under your nose…

Are you spending time you don’t have trying to work out problems you didn’t create? Let’s face it—good service, or the lack thereof, is widely cited as the most common reason that plan sponsors change providers—and that can affect your relationship as well. Sometimes you chose those providers, other times you inherit them. 

Regardless, every plan has someone in charge of administration and compliance—a third party, if you will, so called because they perform functions that plan sponsors are expected to ensure are performed (and once upon a simpler time many did so themselves). Whether you engaged those services, or find yourself tasked with overseeing them, you know they can be the difference between a smooth-running plan and one that constantly teeters on the brink of blowing up. Wouldn’t it be nice if you could partner with this “third party” administrator to take some of the burden off your shoulders and give you the time you need to spend elsewhere?

Not that the solution is unknown—roughly a year ago, we surveyed NAPA advisors, and found that nearly all (96%) partner with specific third-party administrators; just over half (55%) focus on one to three firms, while a quarter limit it to just one. Not surprisingly, service was cited as the primary consideration in choosing a TPA partner (56%), while fewer than half as many (26%) cited an ability to help with plan innovation. However, nearly half (45%) of the survey respondents said that less than a quarter of their new business is sold with a TPA.  

The reality is, of course, that like advisors, all TPAs are not created equal—they have different strengths and skillsets, and wildly different ideas as to their responsibilities and services. That makes it hard to obtain an apples-to-apples comparison. Indeed, the fact that each recordkeeper has a different process for just about everything makes it easy for things to fall by the wayside if you don’t have a clear assignment of responsibilities with every party.

Do you prefer the simplicity of a bundled solution? Well, they’re also a TPA, though again many define their process and services differently. Ultimately, the value a good TPA can (and arguably should) add to your practice are things like:

• Free up time. With price compression, find ways to leverage partners to provide services so you don’t have to. They’re a—if not the—point of contact for administrative questions, solving the day-to-day problems, things like that. 
• Help you win business. By partnering with you to craft customized solutions, where appropriate, for your customers—and prospects. They can/should be your right hand technical expert both in attracting and retaining good clients.
• Ensure that your client’s plan remains in compliance. At times it seems as though 1,000 different things can go wrong on any given day—and there’s clearly value both in administering the plan competently so that problems are avoided, and knowing how best to remedy the situation when those problems inevitably do arise. They not only bring specialized knowledge, but also the opportunity of providing a single point of contact for technical issues involving plan administration and testing. 

Bundled or unbundled, a good TPA can be a plan advisor’s best friend. Ultimately, the choice to use a TPA—or which TPA is chosen—may depend on the size of a plan or the plan sponsor’s particular needs. As with everything in life, the relationship and cultural fit is paramount. 

In (too) many situations recordkeeper/TPAs seem to be viewed not merely as a third party, but as a third wheel—someone who at best is a necessary evil —and at worst, destructive to its smooth operation. 

That said, a deliberate, thoughtful—dare I say “prudent”—partnership with these “third” parties, one that specifies assignments, roles and responsibilities—in that review meeting, and on an on-going basis can not only free up your time, but provide better service, higher client retention, more sales opportunities, and improved legal and operating compliance for the plan sponsors you serve.

Let’s face it—if they’re not an active, engaged member of your team, they should be.  

- Nevin E. Adams, JD